Harmonic's CableOS momentum slowed by COVID-19

Deployments and commitments for CableOS, Harmonic's virtualized cable access network platform, climbed higher in the first quarter of 2020, but the overall pace started to slow as cable operators altered their operational priorities amid the COVID-19 pandemic.

Harmonic said it ended Q1 with 27 commercially deployed customers of CableOS, up 17% from the prior quarter. Those deployments span about 1.3 million served cable modems, up 30% since the fourth quarter of 2019 and up 94% from the year-ago quarter.

Harmonic's CableOS deployments, which include a multiyear, multimillion-dollar enterprise licensing deal with Comcast, represent an addressable service footprint of more than 45 million modems served, company president and CEO Patrick Harshman said on Monday's earnings call. That creates "a clear line of sight for significant expansion with already onboarded customers," he said. "There's a lot of headroom there."

But Harmonic is also seeing the rollout pace slow in the near-term to a "modest" degree as some customers change their operational priorities to deal with the pandemic. The company expects those plans to accelerate again in the second half of the year.

During Q1, Harmonic nabbed its first commercial purchase order for its new centralized shelf product for CableOS from an unnamed Tier 1 customer. That will complement and enhance Harmonic's CableOS activity for new distributed access architectures, Harshman said.

With CableOS's ability to support both centralized shelf and distributed, deep fiber networks, "we've got the whole thing covered," he proclaimed.

Upstream opportunities
Harmonic is also seeing growing interest in CableOS from MSOs that are exploring upstream capacity enhancements. Harshman said those scenarios envision upstream bandwidth in the core (via a software license using the same server infrastructure) and linked to a physical layer device, such as a centralized shelf or a segmented node toward the edge of the network.

That combination eliminates the need to do a bunch of rewiring in legacy environments. "It's all a completely software-driven process on the upstream," Harshman said.

He added that Harmonic expects to start trials of CableOS on fiber-to-the-premises networks. While that approach could give Harmonic an entry into the telco FTTP market, it's more likely a solution for MSOs that use CableOS today on hybrid fiber/coax (HFC) networks that are also deploying FTTP in targeted situations, including greenfield buildouts.

Harmonic's video business was hit harder by COVID-19 in Q1 as several deals were delayed and some deployments could not be completed due to facility closures. But Harmonic still managed to add nine new customers for its software-as-a-service streaming offering, including a couple of Tier 1 players.

Financial update
Due in part to the impact of COVID-19, total Q1 revenues dropped 2.1%, to $78.4 million, year-over-year, with Comcast representing 17% of revenues and Vodafone representing 12%.

Cable revenues rose 85.6%, to $24.0 million while video revenues dropped 19.1%, to $54.4 million. Harmonic swung to a Q1 loss of $9.5 million, or 10 cents per share.

For Q2 2020, Harmonic expects revenues of $62 million to $77 million, including $20 million to $27 million from its cable access segment, and a loss of 9 cents to 18 cents per share.

Harmonic shares were down 66 cents (10.06%) to $5.90 each in after-hours trading Monday.